Mendocino County Promotional Alliance Since 1998, public funds have been allocated under contract to the Mendocino

The Alliance operates independently under contract with the Board, financed with money from the general fund. The current focus of the Alliance is to promote existing wine and lodging businesses for its members. Response (Board of Supervisors): The Board agrees with the first sentence. To clarify the relationship of the parties involved, the Board of Supervisors has entered into a contract with the Alliance to secure certain services. Contractual agreements are common practice with all public agencies who require firms and individuals having specialized skills or ability to perform comprehensive activities which are determined by the local governing body as being necessary for the general welfare of the public at large. The Board disagrees with the second sentence. The Alliance does not maintain a “membership” of select businesses. No sole individual or business receives unique or direct benefit from actions of the Alliance. The Alliance is an “association of associations” (e.g. Chambers of Commerce, Mendocino Winegrower’s Alliance, Mendocino County Lodging Association, Farm Bureau etc.). The County wishes to extend benefit to the residents of the County through certain services provided by the Alliance. The County does expect the Alliance to solicit contributions from the business community to be pooled with County provided funding. As background, representatives from the County and a number of tourism and agriculture related industries cooperatively formed an Advisory Group that provided input to prepare the 1998 Joint Tourism & Agriculture Marketing and Promotion Feasibility Study (Study). The purpose of the federally financed Study was to define the economic damage done to our economy by the decline of the timber industry and to identify the best and quickest way to overcome that damage. Prior to receiving federal funding, several private sector organizations had been discussing the development of a cohesive marketing and promotion effort to assist the tourism and agriculture industries develop the local economy. After receiving the federal grant, a team of qualified economic development consultants coordinated this investigation and applied several methods to collect information, including discussions with the advisory group and an intensive interview process with representatives of business and private organizations. After the consulting team completed their economic analysis, they prepared the Study that made “specific recommendations to assist in the development of a promotional marketing organization and strategy to expand the tourism and agriculture industries.” After the Study was completed, several of the same nonprofit and business organizations continued to spearhead the development of a cohesive marketing and promotional alliance and incorporated a nonprofit organization “Mendocino County Alliance” (Alliance) of associations; an “association of associations” like most convention and visitors bureaus. The County was not directly involved nor did it finance the incorporation of the Alliance. The Alliance Board of Directors is an 18-person assembly, mostly composed of representatives of those associations and three positions for County representation to insure portrayal and representation of public affairs. Response (Mendocino County Alliance): Agree with the County Response with these additions. First, both the County and private sector participants fund the Alliance. The County provides funds from the County General Fund to the Alliance based on a planning formula tied to collections of the TOT. Private sector participants provide significant inkind and cash resources as well. Second, the County agreed to support the Alliance’s initial focus of increasing room occupancy and sales of locally made wine because the Study (see above) showed that this is the fastest way to overcome the substantial economic damage done to the County’s economy by the decline of the timber industry. In 1970 thirty six percent of Mendocino County’s jobs were provided by the timber industry. Today the number is about 6%. In 1970 both our tourism and the agriculture/wine/food industries each provided about one-fifth of the jobs provided by timber. Today each provides roughly the same or even more jobs as our greatly reduced timber industry. Even so, the growth of these two industries has not filled the gap left by timber’s decline. Today almost half our rooms are unrented and we ship half our grapes out of the County. If we were able to move occupancy up to a little better than 70%, cut our grape exports in half and channel most of those grapes into small locally owned wineries, we would just about entirely fill the gap left by timber’s decline. For example, according to the State of California, visitors to Mendocino County today spend around $300 million in our County. That’s over $3500 for each woman, man and child who lives here. Visitors directly generate nearly $30 million in taxes. And we receive those economic benefits at only a little more than 50% occupancy. There are strong markets for both tourism and wine. The Study found no other opportunities to overcome the economic damage caused by timber’s decline in the County that come close to these two.

The contract specifies quarterly payments without requiring the Alliance to submit a line item budget or an accounting of expenditures. Response (Board of Supervisors): The Board agrees with this finding. However, the Alliance does provide, at the end of each quarter, a summary report of activities and a financial statement including an income and expense report to the County. At the beginning of each County budget cycle, the Alliance submits a budget proposal that is considered by the Board of Supervisors (Board). Other groups and organizations also submit proposals at this time, and occasionally throughout the year, for consideration for funding by the Board. Many of those same organizations receive annual revenue from the County either as direct payment or reimbursement for work performed or delivered product. This is common practice of cities and counties. At the end of the term of the Agreement, the Alliance is required to retain the services of a Certified Public Accountant to conduct a complete financial review of all books and records of the Alliance, which pertain to services performed by the Alliance under the terms of the Agreement. This special practice is withheld for major public funded projects or grant and loan programs with special state or federal regulatory overlay requirements. This requirement is usually cost prohibited with minor funding requests. Response (Mendocino County Alliance): Agree with the County Response with these additional comments. Collectively, the Alliance Board of Directors has some of the most significant management experience in Mendocino County. The management and staff of the Alliance have decades of professional experience. The hundreds of firms and thousands of owners and employees involved with the Alliance together have very broad and deep experience in their industries, their markets and in numerous professional roles. The County itself can’t possibly replicate this level of knowledge and expertise in the management of such a promotional organization. We believe that the Board of Supervisors is most interested in knowing that the funds provided to the Alliance are effective in moving the County towards its larger economic goal of replacing the economic gap left by the decline of timber. We believe that the Board of Supervisors recognizes that in addition to the controls discussed in the County response, the Board of Directors of the Alliance is uniquely qualified to make sure the Alliance properly manages its operations. Further, the Alliance Board of Directors has no interest in allowing the Alliance to be inefficient or ineffective.

The Alliance is providing promotional activities to private industry with public funds. Response (Board of Supervisors): The Board agrees with this finding. The Alliance is providing promotional activities with public funds that stimulate consumer demand for products and services supplied by the business community who provide jobs, tax revenue, and other worthwhile contributions to the public at large. This is common practice for states, counties and cities throughout the United States. Response (Mendocino County Alliance): Agree with the County Response. In addition, every city and county in California that has a Visitors Bureau provides public funding to that Bureau. (Annual Budget Survey of the Western Association of Convention and Visitors Bureaus - “CVB”) About 90% of those CVBs are organized exactly as is the Alliance – private nonprofit corporations that receive funding from a local city or county under the terms of a promotional contract. There is absolutely nothing unusual or improper about the Board of Supervisors entering into an agreement with and providing funds to the Alliance based on the Alliance’s organization.

The industries benefiting from the Alliance were growing rapidly without outside support. The Study conducted in 1998 indicated that during 1992-95 “Mendocino County attracted more new visitor spending than all other of the other coastal counties….real tourism expanded by 20%…..Mendocino County’s tourism and agricultural sectors are both on the rise, and they are ‘shining stars’ of Mendocino’s economy. Tourism is expanding rapidly…The Mendocino County wine industry is expanding rapidly on its own with minimal assistance from government and tourism promotion entities.” Response (Board of Supervisors): The Board agrees with this finding. The 1998 Mendocino County Joint Tourism & Agricultural Marketing and Promotion Feasibility Study (Study) indicates that percentage growth of visitor spending in Mendocino County far-exceeded percentage visitor spending in many other counties. The Study also clearly recognizes two other county economic studies that “reveal that two such sectors show evidence of the strongest current and prospective job and sales growth are the tourism and agricultural sectors.” The study also recognized that Mendocino County is highly successful in creating quality products, although three major factors have contributed to hampering the ability to fully capitalize on our local assets to create jobs and tax revenues. These include: 1) “local efforts to promote tourism and agriculture have historically been fragmented.” 2) “Local marketing efforts have not been strategic and consistent.” and 3) “ That local leaders perceived that the most limiting factor to achieving significant market presence in either tourism or agriculture product market, has been the overall lack of public and private investment in promotion.” True, the residents and businesses of Mendocino County are fortunate to have had the strong and thriving wine and tourism industries help pull the local economy through a declining timber industry. During the same period of timber industry job losses, jobs were created in the lodging and agriculture sectors. The Study shows those 8,800 agricultural and tourism jobs as roughly one third of all local jobs. The Study also projects opportunity to increase the capacity of those sectors through marketing and promotion to create more jobs and revenue for our local economy. Response (Mendocino County Alliance): The Study Report is several hundred pages long. We believe the Study’s conclusions are different than those reported by the Grand Jury. The growth of these industries resulted from strong market demand during that period that caused similar industries in other California counties to grow as well – not from the strength of our local industries. Our industries have significant weaknesses. Our lodging occupancy rate is only slightly better than 50%. Hundreds, perhaps thousands of people lose their jobs because of low winter occupancy. The statement “The Mendocino County wine industry is expanding rapidly on its own” is not correct. Increased wine grape production has mostly been to supply wineries outside the County and Fetzer Vineyards. Fetzer, an excellent local employer and part of a large international corporation, has increased production rapidly. But locally owned wineries have not increased production significantly. Fifty percent of our grapes are shipped out of the county and less than ten percent of our grapes go to locally owned wineries. Mendocino County’s historical role in the California wine industry has been to grow grapes to be made into wine in Napa and Sonoma wineries. But for every job in a vineyard, there are three jobs in wineries – somewhere. Unfortunately, we ship those good paying jobs out of the County every year. Mendocino County is different from other major California tourism and wine counties. Our lodging establishments are the smallest in California. Our locally owned wineries are small. Family farmers still own most of our farmland. These small family firms struggle just to get their work done. Their tiny marketing budgets can’t compete against the large well-financed corporate businesses in our chief competitive counties. This unequal competition is made much worse because County governments in all those other counties have provided millions of dollars for decades to support their industries against ours. If a strong marketing alliance doesn’t provide the “Mendocino” marketing that our small tourism, wine and food firms can’t do themselves, they will not be able to capture the jobs, incomes and tax base that today are wasted in unrented rooms and shipped out grapes. Unemployment rates will remain too high, family incomes too low, and local governments will not be able to provide the services we desire.

In May, 2001, the County hired an Economic Development Coordinator, who is directly supervised by the County Administrator, to provide business relations, community development block grants, tourism and filming promotion, housing, and redevelopment. Response (Board of Supervisors): The Board agrees with this finding. The County Economic Development Coordinator increases the capacity of the County Administrative Office and other County departments to provide economic development services to the community. Economic development is a comprehensive multi-facetted discipline combining business expansion and recruitment, business retention, entrepreneurial development, community capacity building, and leadership development together to accumulate community wealth and maintenance of a sustainable quality of life. The County uses several independent contractors to provide those comprehensive services in programs such as Community Development Block Grant, redevelopment, micro-enterprise assistance, marketing and promotion. The Economic Development Coordinator assumes a leadership role in facilitating those services as directed by the Board of Supervisors and County Administrative Officer. Response (Mendocino County Alliance): Agree with the County Response. In addition, as stated above, the Alliance is organized in the same way as nearly 90% of the Visitors Bureaus in California – independent non-profit corporations that enter into contracts with one or more of their local governments. Cities and counties choose to fund private nonprofit industry-based promotional organizations for several key reasons. Local governments have learned that they are more likely to achieve their economic goals when the firms that will actually accomplish the increases in jobs, incomes and tax base become partners and actors in those goals. Creating a fund for local promotional efforts was an original justification for the creation of “Bed Taxes”. Local governments want to enlist their local industries that will benefit from these promotions to provide leadership for these organizations because they have the industry experience necessary for these organizations’ success. Local industry provides considerably more cash and volunteer support for private promotional organizations for which they are responsible as compared to government agency promotional offices. And finally, cities and counties rarely want to be in the business of running marketing or promotional organizations; that is not their expertise.

Alliance administration publicizes their contention that they are entitled to a portion of the Transient Occupancy Tax collected by the County. The Grand Jury finds nothing to support this contention. In fact, pursuant to County Code, section 5.17.060, Transient Occupancy Taxes collected by the County “shall be used to fund general governmental functions of the County.” Response (Board of Supervisors): The Board neither agrees nor disagrees with first two statements. Historically, other organizations have publicized or debated with the County that they are entitled to a portion of the Transient Occupancy Tax (TOT) collected by the County. The Alliance has made reference to the operations of convention and visitors bureaus that receive contributions or percentages of Transient Occupancy Tax to fund those bureaus’ operations. However, the County is not aware of any direct statement from the Alliance administration contending that the Alliance is “entitled to a portion of the Transient Occupancy Tax collected by the County.” The Board partially disagrees with third sentence. The County presumes that the Grand Jury is referencing County Code Chapter 5.20. Tax Imposed on Transients. Of that Chapter, Section 5.20.031(B) states, “The revenue raised by this tax shall be used to fund the general governmental services and operations of the County of Mendocino.” The Tax Imposed on Transients or, as commonly recognized, “Transient Occupancy Tax” (TOT) is general revenue. Collected TOT has the same unencumbered utility as other general revenue, such as sales and property taxes. General revenue is considered as ‘discretionary funds’ meaning that the Board of Supervisors has discretion to divide and spend these funds as approved by a majority vote of the Board. Response (Mendocino County Alliance): Agree with the County Response. In addition, the Alliance’s leadership has never said that the Alliance is “entitled” to any funding from the County, including from the Transient Occupancy Tax (TOT). We believe that the County should fund the Alliance because convincing evidence has shown that it is in the public interest to do so.

A State of California Travel and Tourism Board Commission Study of 1999 recommends measures for return on investment to be written into tourism promotional contracts. Measures should be adopted which meet the following three tests: a. Goals and objectives should include outcomes that are quantifiable, reflect actual visitor behavior, and specify a time frame; b. Results should be clearly and logically traceable to deliberate marketing actions; c. The return to the community or region directly attributable to marketing activities must be greater than the cost of the program. Response (Board of Supervisors): The Board partially disagrees with this finding. The article Determining the Return on Investment from Destination Marketing by Tiffany Urness, Research Manager for the California Division of Tourism “proposes the steps that convention and visitor bureaus, chambers of commerce and other DMOs [destination marketing organizations] can take to set up credible measures of the effectiveness and value of their programs.” The article does not state a recommendation that measures for return on investment to be written into tourism promotion contracts. Response (Mendocino County Alliance): Agree with the County’s response.

The contract between the Board and the Alliance has no requirement for financial return on investment. Response (Board of Supervisors): The Board agrees with this finding. The contract agreement between the Board and the Alliance stipulates that the “[Alliance] has been selected by the Board of Supervisors to implement a comprehensive program which will promote and foster increased tourism in Mendocino County and which will promote and foster the marketing of agricultural products which are produced in Mendocino County.” Response (Mendocino County Alliance): Agree with the County’s response, with the addition that when the Board of Supervisors provided funding to the Alliance during the County budget process in summer of 2000 they also directed the County’s Chief Administrative Officer to work with the Alliance to propose measures that would strengthen the relationship between MCA and the County. This requirement was written into the contract between the County and the Alliance for the current fiscal year. Included in these measures was consideration of whether or not a Return on Investment system should be developed. This requirement was accomplished as described in